Payroll in Italy: employer costs, taxes & compliance (2026)

Running payroll in Italy means handling a few moving parts every cycle. You calculate gross salary, apply employee income tax withholding, deduct the employee's share of social security contributions, add the employer's own contributions on top, and file the lot with the relevant authorities. Italy's system is well-established, but the rules are specific and the filings happen in Italian.

This guide covers what it costs to employ someone in Italy, how the pay cycle works in practice, what leave and termination rules mean for your payroll runs, and when it makes sense to bring in outside help.

The gap between what an employee sees on their payslip and what you actually spend is meaningful in Italy. Employer social security contributions add roughly a third on top of gross salary, so a role with a certain gross cost is noticeably more expensive in total. See the table below for the exact rates. Budget for that gap from day one, because it catches a lot of first-time employers off guard.

The overall tax wedge, which combines employer costs, employee contributions, and income tax as a share of total labour cost, sits above 45 percent. In plain terms, that means less than sixty cents of every euro you spend on an employee lands in their pocket after all deductions. That is worth knowing when you are setting compensation expectations with candidates.

Salaries in Italy are typically paid monthly. One thing to plan for is the thirteenth-month salary payment, which is mandatory. Most employees receive it in December, often tied to the Christmas period, though the timing can depend on the applicable collective agreement. There is no single statutory national minimum wage in the traditional sense, so the floor for most workers is set by sector-level collective bargaining agreements. Make sure you know which agreement covers your employees before you set any figures.

Annual leave sits at 20 days per year, plus 12 public holidays, and both accrue as the year goes on. When an employee leaves, any unused leave gets paid out as part of their final settlement, so keep accrual records clean throughout employment. Notice periods run to just over four weeks as a baseline, though collective agreements often set longer periods depending on seniority and role. On severance, Italy works differently from many countries: the statutory severance figure from the World Bank data comes out at zero weeks of additional pay, because Italian law instead operates a deferred pay mechanism called TFR, where a portion of salary is set aside each year and paid on exit. That pot needs to be tracked carefully, since it becomes a final-pay item at the end of every employment relationship.

If you do not have a legal entity in Italy, you cannot run payroll there directly, so an employer of record is often the practical starting point for foreign companies hiring Italian workers. Even with an entity, keeping up with contribution rate changes, collective agreement updates, and TFR calculations takes real local knowledge. A global payroll provider with genuine Italian coverage handles the filings in Italian, tracks rate changes as they happen, and reduces the risk of getting something wrong in a system that has real complexity under the surface.